“Counter to our expectations in late-September, agricultural prices have weakened meaningfully owing to a string of bearish U.S. data, expectations of better 11/12 global production and the overhang of EU debt concerns,” the bank said in a note to clients.

Morgan Stanley now expects 2011-12 corn prices at $6.60 a bushel, from $7.25 earlier, and 2012-13 corn prices at $5.75 a bushel down from $6.00.

“Agricultural commodities have broadly fallen out of favor since September,” the bank said citing the U.S. Commodity Futures Trading Commission (CFTC) which showed corn’s net speculative length, as of Dec. 9, stood at its lowest since July 2010.

The bank also lowered its 2011-12 soybean prices to $12.75 a bushel, from $14.25 a bushel and to $12.70 a bushel for 2012-13, down from $13.50.

and soybeans had fared worse, according to the CFTC report last week, showing the most bearish speculative position in wheat since 2005 and soybeans since mid-2010, the bank said.

It cut its 2011-12 wheat price forecast to $6.70 a bushel from $7.50 earlier and its 2012-13 forecast to $6.30 a bushel from $7.00.

However, Morgan Stanley said it remained bullish relative to the market with their 2011-12 price forecasts stating that the U.S. Department of Agriculture’s January WASDE and quarterly Grains Stocks reports could refocus market attention on near-term U.S. tightness and support prices.

To be clear, we remain bullish relative to the market, with our new 11/12 price forecasts still suggesting 12 percent, 15 percent and 8 percent upside to the corn, soybean and wheat forward curves, respectively,” the bank said.